Surety Indemnity on Proof of Payment: Underlying Default Irrelevant Absent Bad Faith or Unreasonableness (Berkley Insurance Co. v. FG-PH Corp.)

I. Introduction

Berkley Insurance Co. v. FG-PH Corp. (2d Cir. Mar. 11, 2026) is a federal appellate decision applying New York surety-indemnity principles to enforce a General Agreement of Indemnification (“GAI”) after a surety paid to settle a performance bond claim. The dispute arose from a Brooklyn multifamily renovation project in which FG-PH Corp. (the general contractor) contracted with Casa Pasiva Housing Development Fund Corporation and Casa Pasiva, LLC (together, “Casa Pasiva”) to renovate eight apartment buildings. Berkley Insurance Company issued a $21,292,247 performance bond as surety for FG-PH’s obligations, conditioned on FG-PH and individual indemnitors executing the GAI, making them jointly and severally liable.

The project encountered delays; Casa Pasiva terminated the construction contract and asserted a claim on the bond. Berkley settled the bond claim by paying $10.5 million and obtaining an unconditional general release. Berkley then sued FG-PH and the other indemnitors to recover that payment under the GAI.

The key issues on appeal were whether Berkley’s proof of payment entitled it to summary judgment under the GAI and New York law, and whether defendants could defeat summary judgment by arguing (i) Casa Pasiva breached the underlying construction contract (so the bond should not have been triggered), or (ii) Berkley’s settlement payment was made in bad faith or was unreasonable.

II. Summary of the Opinion

The Second Circuit (in a non-precedential summary order) affirmed the Eastern District of New York’s grant of summary judgment to Berkley on its contractual indemnification claim and affirmed the damages award of $10.5 million plus prejudgment interest. The court held that:

  • Under New York law, a surety seeking indemnification under an indemnity agreement is entitled to recover upon proof of payment, unless the indemnitors show the payment was made in bad faith or was unreasonable in amount.
  • It is irrelevant to the surety’s indemnification right whether the principal (here, FG-PH) was actually in default or liable to the obligee.
  • The GAI’s unambiguous terms gave Berkley exclusive discretion to settle bond claims, and the court enforced the agreement as written.
  • Defendants’ assertions of bad faith were speculative and conclusory and therefore insufficient to raise a triable fact issue.

III. Analysis

A. Precedents Cited

1. The New York “proof of payment” rule for surety indemnity

The panel grounded its decision in established New York appellate authority holding that a surety is entitled to contractual indemnification upon proof it paid on the bond, absent bad faith or unreasonableness, regardless of the principal’s underlying liability:

  • John Deere Ins. Co. v. GBE/Alasia Corp., 869 N.Y.S.2d 198 (2d Dep’t 2008): quoted for the proposition that a surety is entitled to indemnification upon proof of payment unless the payment was made in bad faith or was unreasonable, and that this applies “regardless of whether the principal was actually in default or liable under its contract with the obligee.” The Second Circuit treated this as the governing statement of New York law and emphasized its “crucial” implication: “it is irrelevant whether the indemnitor was actually liable on the underlying debt.”
  • Lee v. T.F. DeMilo Corp., 815 N.Y.S.2d 700 (2d Dep’t 2006): cited via John Deere for the same rule and for the definition of good faith (“honest belief” in liability for claims).
  • Int'l Fid. Ins. Co. v. Kulka Const. Corp., 954 N.Y.S.2d 638 (2d Dep’t 2012): used for the procedural framework at summary judgment. It explains how a surety makes a prima facie showing by submitting documentation of payment and an itemized list of expenses, and then the burden shifts to defendants to raise a triable issue of fact on good faith or reasonableness. The opinion also supplied the key evidentiary admonition: “speculative and conclusory assertions” do not create a triable issue as to good faith.
  • Frontier Ins. Co. v. Renewal Arts Contracting Corp., 784 N.Y.S.2d 698 (3d Dep’t 2004): cited (with parenthetical “collecting cases”) as additional New York authority reinforcing the rule that the principal’s underlying liability is not a condition to the surety’s indemnity recovery when the indemnity contract so provides.

Collectively, these cases provided the doctrinal spine: a surety’s indemnity claim is principally a contract enforcement action, not a relitigation of the underlying construction dispute, unless defendants can show bad faith or unreasonableness in the surety’s payment.

2. Enforcing unambiguous contract language

To defeat defendants’ attempt to reframe the case as a dispute over Casa Pasiva’s alleged breach, the court relied on New York contract-interpretation principles:

  • Hughes Comms. India Private Ltd. v. The DirecTV Grp., Inc., 71 F.4th 141 (2d Cir. 2023): cited for the rule that where a contract is clear and unambiguous under New York law, it must be enforced according to its plain terms.
  • Abdullayeva v. Attending Homecare Servs. LLC, 928 F.3d 218 (2d Cir. 2019): quoted (via Hughes) for the same “plain meaning” principle.

These authorities mattered because the GAI’s settlement-discretion clause foreclosed defendants’ argument that Berkley had “no obligation” to pay if Casa Pasiva was in breach. Once the court found the GAI unambiguous, it treated Berkley’s settlement authority as dispositive unless defendants could produce competent evidence of bad faith.

3. The summary judgment and appellate review framework

  • Roth v. Armistice Cap., LLC, 151 F.4th 21 (2d Cir. 2025): cited for the standard of de novo review of summary judgment, with evidence construed in the nonmovant’s favor.
  • Fed. R. Civ. P. 56(a): the court restated the “no genuine dispute as to any material fact” standard.

This procedural posture was critical: once Berkley made its prima facie showing (proof of payment), defendants had to point to evidence that could allow a reasonable factfinder to find bad faith or unreasonableness. They could not survive summary judgment through argument alone.

B. Legal Reasoning

The Second Circuit’s reasoning proceeds in a structured, burden-shifting sequence consistent with Int'l Fid.:

  1. Prima facie entitlement through proof of payment. Berkley submitted documentation showing it paid $10.5 million to Casa Pasiva in settlement of its performance bond obligations. Defendants did not contest that the payment occurred. Under New York law, this satisfied Berkley’s threshold burden.
  2. Contractual settlement discretion forecloses “no obligation to pay” defenses. Defendants argued Berkley should not have paid because Casa Pasiva allegedly breached the construction contract (i.e., the bond claim lacked merit). The court rejected this on two converging grounds: (a) the GAI “unambiguously gave Berkley exclusive discretion to settle claims” arising from the bond; and (b) New York law treats the principal’s underlying liability as irrelevant to the surety’s contractual indemnity right, absent bad faith or unreasonableness.
  3. No triable issue of bad faith. The court applied the New York definition of good faith from John Deere/Lee: payment is in good faith if made with an honest belief of liability. Defendants asserted that Berkley’s good faith was disputed, but the panel found “nothing in the record” supporting bad faith. Invoking Int'l Fid., it held that speculative and conclusory assertions cannot create a triable issue.

Notably, the court did not require Berkley to prove FG-PH’s default, Casa Pasiva’s compliance with the construction contract, or the objective correctness of Berkley’s coverage position under the bond. The dispositive questions were contractual and evidentiary: Did Berkley pay? Did the GAI authorize settlement? Did defendants present evidence of bad faith or unreasonable payment?

C. Impact

Although the decision is designated a summary order and expressly “do[es] not have precedential effect,” its practical influence is still meaningful in at least four ways:

  • Reinforcement of surety-indemnity enforcement in federal court. The order signals that the Second Circuit will apply New York’s “proof of payment” rule straightforwardly on summary judgment, making federal court an efficient forum for surety indemnity recovery when the record is well documented.
  • Limits on “underlying dispute” defenses. Indemnitors frequently attempt to resist reimbursement by litigating the underlying construction termination or owner breach. This decision underscores that such arguments generally do not create a material fact issue where the GAI grants settlement discretion and where defendants cannot substantiate bad faith or unreasonableness.
  • Drafting and risk-allocation consequences. The emphasis on unambiguous “exclusive discretion to settle” language incentivizes sureties to maintain robust settlement-authority clauses and reinforces to principals/indemnitors that signing a GAI often means ceding control over bond-claim resolution.
  • Evidentiary discipline at summary judgment. By rejecting unsupported allegations of bad faith, the court highlights what future indemnitors must do to survive summary judgment: produce concrete evidence (e.g., contemporaneous communications, valuation analyses, settlement irregularities) showing dishonest motive, collusion, or objectively irrational payment amounts.

In short, the order strengthens the predictability of GAI enforcement: absent record evidence of bad faith or unreasonable settlement amounts, sureties that can prove payment and show clear settlement authority should expect to prevail.

IV. Complex Concepts Simplified

  • Surety / performance bond. A surety (Berkley) promises the project owner (Casa Pasiva, the obligee) that the contractor (FG-PH, the principal) will perform. If the contractor defaults (or the owner asserts default), the surety may have to pay or arrange completion—often through settlement.
  • General Agreement of Indemnification (GAI). A contract where the principal and other indemnitors promise to reimburse the surety for payments, losses, and expenses incurred due to issuing the bond. GAIs commonly include clauses giving the surety broad discretion to investigate, compromise, and settle claims.
  • Contractual indemnification. A contractual promise to repay another party’s covered losses. Here, defendants promised to reimburse Berkley for amounts Berkley paid because of the bond.
  • Joint and several liability. Each indemnitor can be held responsible for the entire amount owed, not merely a proportional share, allowing the surety to collect from any one or more defendants.
  • Prima facie case (in this context). The minimum showing the surety must make to win unless the other side produces contrary evidence—typically proof it paid and documentation of the payment/expenses.
  • Bad faith vs. mere disagreement. “Bad faith” requires more than saying the surety “shouldn’t have paid.” Under the cited New York cases, the focus is whether the surety paid with an honest belief it faced liability. Conclusory allegations without evidentiary support do not create a trial-worthy dispute.
  • Summary judgment. A pretrial decision where the court rules because there is no genuine dispute of material fact requiring a jury or trial judge to weigh evidence.

V. Conclusion

Berkley Insurance Co. v. FG-PH Corp. reaffirms a central New York suretyship principle in the GAI setting: a surety that documents its settlement payment establishes entitlement to indemnification, and indemnitors cannot defeat summary judgment by relitigating the underlying construction dispute or by asserting unsupported claims of bad faith. The decision underscores the power of clear GAI language granting settlement discretion and elevates the importance of evidentiary substantiation when indemnitors challenge the surety’s conduct.